Canada’s two largest newspaper chains will close three-dozen community and free commuter newspapers after striking a deal to swap newspapers struggling with declining print advertising revenue.

Postmedia Network Inc. and Torstar Corp. announced Monday they traded 41 publications and plan to close 36 papers in places where they compete. The shuttering of 34 papers in Southern Ontario, one in Winnipeg and one in Vancouver will eliminate 291 jobs and save each company between $5 million to $7 million annually.

The companies say they remain committed to local news and are only closing papers in regions served by multiple publications. For example, Torstar bought the Barrie Examiner and already owns the Barrie Advance — it will close the Examiner and continue to operate the Advance.

Postmedia executive chairman and CEO Paul Godfrey called it a sad day for the newspaper industry, which has faced massive disruption as readers go online for news and companies spend more advertising dollars on global platforms such as Facebook and Google.

“This is a crisis situation,” Godfrey said in an interview from his Toronto office. “Most deals you make, you want them to be win-win. Unfortunately this is a lose-lose. You lose brands and you lose people.”

Digital advertising revenue is growing, but it has yet to make up for losses in print revenue, which Godfrey said dropped 24 per cent across the entire Ontario market in the second quarter of 2017.

High costs and declining ad revenue meant it was no longer viable for some markets to have competing papers, including free dailies distributed at subway stations in Toronto and Vancouver, he said.

Postmedia acquired 22 community newspapers and two free dailies from Torstar subsidiaries Metroland Media Group and Free Daily News Group in exchange for 15 community newspapers and two free dailies.

Torstar will close all but four of the properties effective immediately, including three paid dailies, the Barrie Examiner, Orillia Packet and Times and Northumberland Today. Forty-six employees will lose their jobs at community newspapers and receive severance packages. One job will be lost at 24 Hours in Vancouver. Torstar will continue to operate the St. Catharines Standard, Niagara Falls Review, Welland Tribune and Peterborough Examiner.

Torstar’s Metroland Media said it reviewed the financial performance of the cancelled publications before determining closure was the “only realistic option,” given falling print advertising revenue.

“This transaction will allow us to operate more efficiently through increased geographic synergies in a number of our primary regions,” Torstar president and CEO John Boynton said in a statement. “By acquiring publications within or adjacent to our primary areas and selling publications outside our primary areas we will be able to put a greater focus on regions where we believe we can be more effective in serving both customers and clients.”

Postmedia, owner of the Financial Post, will close 23 of its 24 new properties – it will continue to operate the Exeter Times-Advocate and the Exeter Weekender – by mid-January, with 244 employees losing their jobs.

Postmedia continues to employ 3,500 people across Canada. It said the transaction, which consolidates resources geographically, helps preserve jobs in areas that can no longer sustain multiple products.

Postmedia engaged in the swap instead of simply shutting down its papers because it wanted to refocus on a few key areas in Ontario as it retrenched from others, president and chief operating officer Andrew MacLeod said. The deal expands its flyer and insert customers in certain markets.

The companies were “extraordinarily careful” not to share any knowledge about their plans for the properties after the transaction, he added.

Torstar said the transaction was effectively non-cash as the properties exchanged were worth roughly the same amount. Postmedia said the transaction is not subject to merger notification provisions of the Competition Act and does not require regulatory clearance.

The Competition Bureau, however, said it will review the deal.

“I can confirm that the Competition Bureau will be undertaking a review of the transaction,” spokesperson Jayme Albert said in an email.

The Competition Bureau would not reveal the specifics of the review for confidentiality reasons, but said it reviews transactions of all sizes to evaluate whether they would result in a substantial loss or prevention of competition. It has one-year after a transaction is complete to challenge it with the Competition Tribunal.

The deal, which gives each company a more distinct operating region, resembles deals between Black Press Ltd. and Glacier Media Inc. The pair traded more than a dozen papers in B.C. communities over the past five years, concentrating ownership of multiple publications in a single community. Many of the papers were subsequently closed.

Both Godfrey and MacLeod said they have to make increasingly tough decisions to buy time to transform the business model for the digital era where they compete against global players.

Of the $5.5 billion spent on internet advertising in Canada in 2016, an estimated 72 per cent went to Google and Facebook, according to the Canadian Media Concentration Research Project.

Digital advertising revenue is gaining momentum, MacLeod said, adding that Postmedia is exploring digital-only business models in places where it is closing newspapers. But he said it’s tough to compete against U.S. tech giants and the government-funded CBC.

Godfrey has appeared before the federal government to argue for temporary funding for the newspaper industry. On Monday, he reiterated the call for funding and a “level playing field” when it comes to taxation on Google and Facebook. As it stands, companies must pay tax on newspaper ads, but not on Facebook ads.

“I just don’t fathom the logic in that, that you tax your own country’s people and not the ones that are coming in here… they’re not only swallowing up our business, but they’re not paying any tax,” Godfrey said.

“We were once considered the whale in the water. Now we’re the minnow, and the whale is Google and Facebook.”

Godfrey said he’d prefer not to have government funding and stressed that he isn’t asking for a bailout. But he questioned why the government would subsidize movies and local television, yet not local newspaper journalism when the industry is “beyond struggling.”

“Today, sadly, points out there is a crisis in Canada. The alarm bells should go off.”

News Media Canada, the national industry association, estimated Canada had 1,032 community newspapers as of July 2017.

Community newspapers earned an estimated $874 million in advertising revenue in 2016. Only 4.4 per cent came from online advertising.

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